Core Indicators, New Evaluation Tools

segment as an untapped, strategic opportunity that offers high margins, a strong potential for profi tability and important cross-selling and portfolio diversifi cation opportunities. SME banking is seen as a profi table business despite challenges such as the need for buy-in at both management and operational staff level and the need to adapt products and develop IT tools.

Survey results also reveal that the participating banks have recently redesigned their organizational structure to support a strategy that focuses on the SME segment and that they have shifted their focus from SME lending to broader SME banking. Results show a strong emphasis on specialization with all banks employing dedicated mid-market staff and 90 percent having dedicated small business staff and proactive but costeffi cient sales and customer services strategy.

This benchmarking exercise of SME banking practices is the fi rst step towards the roll out of a more comprehensive exercise aiming at benchmarking emerging market banks’ practices in SME banking.

Leasing Reform Takes Off in MENA & Africa

The overwhelming success of IFC’s Private Enterprise Partnership (PEP) in Eastern Europe and Central Asia since its launch in 1998 has led to similar initiatives being launched to develop the use of leasing in the Middle East and North Africa (MENA) and Africa regions.

In Yemen, where only 14 percent of the population has access to fi nance, IFC’s PEP-MENA launched a leasing project in late 2005. A newly-adopted leasing law, signed by President Ali Abdullah Saleh, marks the government of Yemen’s commitment to creating a favorable environment for the development of fi nancial leasing. The law established the legal framework for leasing, a fi nancial instrument proven to increase access to fi nance for micro, small, and medium enterprises seeking to acquire capital assets.

IFC’s PEP for Africa has also launched leasing programs in Ghana, Tanzania, Madagascar, and most recently Rwanda. Major activities include strengthening the regulatory, legal and fi scal framework for leasing, providing capacity building for existing and potential lessors, building public awareness through seminars and workshops, and helping to attract new investment into leasing.

Since the inception of the programs in Ghana and Tanzania, where access to fi nance is available only to 16 percent and 5 percent of the respective population, signifi cant growth in the leasing industry was observed. In Ghana the number of new leases increased by over 70 percent while the total lease portfolio increased by over 73 percent from $29.8 million in 2005 to $51.3 million 2006. In Tanzania, the leasing portfolio increased by almost $10 million between 2005 and 2006.

The Rwanda Leasing Program has recorded some signifi cant early milestones notably sourcing an inhouse leasing expert to work for two years with the Development Bank of Rwanda (BRD) to launch its leasing product and working with leasing industry players to bring the 2008 African Leasing Association annual conference to Rwanda.

Strengthening Financial Infrastructure in Vietnam, Central America

In Vietnam, where only 29 percent of households and private enterprises have access to fi nance, lack of an effective private credit bureau has led to barriers to fi nance being imposed by lenders. A diagnostic study by IFC’s Mekong Private Development Facility (MPDF) found that lending is based almost entirely on collateral and that banks generally do not accept motor vehicles, machinery and equipment as collateral. Such conditions mean that micro, small and medium enterprises (MSMEs), which often lack collateral of any kind, fi nd it particularly diffi cult to access the fi nancing they need to realize their potential.

IFC-MPDF is advising the State Bank of Vietnam and the banking industry on the development of the legal framework needed to establish credit bureaus. The drafting of the decree is almost completed and will be presented to the government at the end of 2007 with the country’s fi rst private credit bureau expected to launch in 2008. IFC-MPDF is also working with the Ministry of Justice to create a legal and institutional framework and a registry that will allow lenders to register their interest in a moveable asset when it is accepted as collateral.

In Central America, smaller nations found it diffi cult to attract state-of-the-art credit information providers due to economies of scale in the industry. In this case, a regional private credit bureau has proved a viable alternative to national bureaus in small markets, where access to fi nance ranged from as little as 5 percent of Nicaragua’s population, and up to 30 percent of the Guatemalan population.

TransUnion Central America (TUCA), was established in 1999 as a private credit bureau providing services to Guatemala, Honduras, El Salvador, Costa Rica, and Nicaragua. TUCA’s business model is based on a hub-and-spokes system—with Guatemala as the hub and the other four Central American countries as the spokes. The spokes leverage the more advanced technological system present in the hub, thus enabling economies of scale, improved effi ciency, and higher profi tability. The creation of a single cross-border private credit bureau enables the delivery of standardized products and services that have superior information quality.

In 2006, Guatemala, Costa Rica, Honduras and Nicaragua accounted for a total of 6.7 million credit bureau inquiries. In the fi rst seven months of 2007, up to the end of July, TUCA’s four bureaus received 5.3 million inquiries, and estimates that it will close the year with over nine million inquiries, or a 35 percent increase over the number of inquiries in 2006. TUCA currently has 460 clients across all four bureaus. Trade lines in its database grew 55 percent in 2006 over 2005, indicating TUCA’s strong focus on strengthening its database.

Going forward, TUCA intends to provide valueadded services, such as credit scores and fraud alert systems, all of which will enhance the capacity of fi nancial institutions to manage risk.

Improving Access to Housing Finance in the Middle East, Standardizing Russia’s Mortgage Market

When Javaid Ali, a middle-income textile designer in Karachi, got married, his apartment could no longer accommodate his parents as well as his new family. Javaid, who had just opened his own business, did not have the money to buy a new apartment for his parents to move to and turned to the Housing Building Finance Corporation (HBFC), a state-owned housing fi nance entity in Pakistan, for fi nancial assistance. Thanks to HBFC’s services, he was able to access, within a month’s time, a mortgage to pay for his parents’ new accommodation. IFC has helped HBFC become more effi cient and improve its response to the housing needs of the low to middle income market segments in Pakistan, where 12 percent of the people are served by commercial banks and other formal fi nancial institutions.

In Oman, roughly one-third of the population has access to fi nance. IFC has worked with Alliance Housing Bank (AHB), the fi rst private sector housing fi nance bank in the country and in the Gulf Cooperation Countries. A $45 million loan helped AHB scale up its lending to middle and low income homeowners while advisory services helped the bank strengthen its underwriting systems and move away from ineffi cient, costly and error-prone paper-based loan origination, processing and servicing systems. IFC has helped AHB improve its effi ciency, increase the number of borrowers it deals with, and seek regional opportunities. In the last two years ended June 30, 2007, AHB provided new loans to 1,847 borrowers and its total portfolio grew by nearly 43 percent from $307 million to $438 million.

In Russia, where 69 percent of the people have access to fi nancial services—but not necessarily access to credit—the fi nancial sector faces a different challenge, with mortgage lending increasing from $400 million in 2004 to $6.2 billion in October 2006, and an anticipated $11 billion in 2007. A diverse array of players is involved in this growth, from mortgage brokers and banks to insurers and tax and accounting fi rms, but without proper regulation and guidance, the industry could develop with just as diverse a range of standards, documentation and processes.

In 2005, IFC launched the Russia Primary Mortgage Market Development Project to take a lead in